Late payments leave small businesses reeling

Small businesses are owed nearly £25,000 on any given day according to new research, highlighting the scale of the UK’s late payment problem.

According to cloud accounting software firm Xero, the “late payment cash mountain” is having a negative influence on the cash flow of the vast majority of small firms.

Not only are investments curtailed, but so are hiring and staff training opportunities, which ultimately impacts the wider economy as around 50% of the UK’s gross domestic product relates to small business operations.

The research suggests that an estimated £141 billion is tied up in late payments, with the average small business owned £24,871.

Xero calculated that the average amount of finance tied up in late payments was more than 10% of turnover for small firms.

Furthermore, the impacts of late payments are disproportionately higher for smaller businesses than they are for larger firms.

Some 78% of smaller firms are left waiting for longer than their agreed payment terms to receive finances, which creates cash flow issues as a result.

An array of alternative finance options can provide short‐term solutions when businesses are facing difficulties, but they should not be used to overcome underlying issues.

If a business is struggling, its directors should seek appropriate advice at the earliest opportunity, while an independent business review might be in order to pinpoint areas where operations can be streamlined.

By taking an unbiased look at assets, cash flow and strategy, it may be possible to find a long‐term financial solution that can help a business to survive, and even thrive.

An estimated 50,000 businesses fail every year due to poor cash flow and financial management, which is why firms need to simplify their processes to ensure swift and easy payments.

Monthly trends can be used to identify particular periods of risk in any given month, while technology and automation can also help to develop the payment process.

By Phil Smith

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